Investing in property has long been seen as a fantastic way to “make money while you sleep”. Becoming a buy-to-let landlord can see you earning a monthly rental income, while also accruing capital gains as your property portfolio increases in value.
But there are downsides. Tax changes in the UK mean that it’s not quite so easy to make buy-to-let profitable. You’re also at the mercy of the property market. That’s generally fine over the long term, but not always great over the short term.
And you have little control over outside events that can have an impact on the value of your property.
Not only that, but there’s a limit to how much value you can add to a property. Yes, you can convert a single let to an HMO or convert commercial buildings to residential, but beyond that you’ll struggle to add much more value.
So how does property investment stack up compared with acquiring a business?
Well, as Brad Sugars puts it in his book, Billionaire in Training, “Assets must have both capital growth and income. If they don’t then they are not assets. Don’t buy property first if you want to become wealthy. Build passive income. Otherwise, you’re likely to become asset rich and cash poor.”
Buying a business gets round this, as it’s both an asset and a source of passive income. If you buy a profitable business that already has a tier of management in place, then you can be reasonably hands off, yet still take an income from the business.
So aside from the fact that it’s much easier to add value in a business than it is when you buy a property, you’ll also be much more likely to be able to draw a decent income. And if your goal is to sell the business, you’ll find you can add much more value in the space of a few years than you ever could to a property.
There’s always going to be a ceiling (no pun intended!) on what you can do to boost a property’s value, whereas you can take a business to any size you want.
If you know what you’re doing in terms of growing a business then there’s an opportunity there to make a lot more money than you could with property. It’s a case of infinite growth versus fixed growth. And it’s a repeatable process – once you’ve done it once you know what levers to pull to have an impact on growth.
With property, you’ll have much less influence on its value. When someone values your property, they’re using comparables – looking at what the property next-door sells for. Beyond any initial work you do to add value, the property only grows in relation to the market.
Acquiring a business is a completely different kettle of fish. With one of the businesses I bought last year, we made a deliberately pessimistic forecast at the point of acquisition. Since then we’ve pushed hard and the work we’ve done means we’ve got the business to the point we predicted we’d be at in year three to four. And it’s only the end of year one.
We’ve increased gross profit and net profit, with the result that the business is worth more now than it was when we acquired it. You couldn’t achieve similar results with property.
Buying businesses is fun
On top of the advantages I’ve already mentioned, doing deals and buying businesses is fun. Once you’ve done it a couple of times and seen what’s possible, I guarantee you’ll want to do more deals.
As I often say, “It’s the most fun you can have with your clothes on!”
If you’d like to get in touch please email me and my team at firstname.lastname@example.org